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Ribbon Communications Inc. (NASDAQ:RBBN)
Q3 2021 Earnings Call
Oct 27, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings and welcome to the Ribbon Communications third quarter 2021 financial results conference call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Berry, investor relations.

Tom Berry -- Investor Relations

Good afternoon and welcome to Ribbon's third quarter 2021 financial results conference call. I'm Tom Berry, investor relations of Ribbon Communications. Also on the call today would be Bruce McClelland, Ribbon's chief executive officer; and Mick Lopez, Ribbon's, chief financial officer. Today's call is being webcast live and will be archived on the investor relations section of our website at ribboncommunications.com, where both our press release and our supplemental slides are currently available.

Certain matters we would be discussing today, including the business outlook and financial projections for the fourth quarter of 2021 and beyond, are forward-looking statements. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10-K and Form 10-Q. I refer you to our safe harbor statement included on Slide 2 of the supplemental slides for this conference call.

In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measures are included in the earnings press release we issued this afternoon, as well as in the supplemental slides for this conference call which, again, are both available on the investor relations section of our website. And now, I'd like to turn the call over to Bruce. Bruce?

Bruce McClelland -- Chief Executive Officer

Great. Thanks, Tom. Good afternoon, everyone, and thank you for joining us today to discuss our third quarter 2021 results and our outlook for the fourth quarter. The third quarter played out almost exactly as we expected, with the exception of increasing supply chain constraints.

Revenue in the quarter was $210 million with approximately $9.5 million dollars moving to the fourth quarter due to supply chain-related constraints. Profitability was very solid, with both adjusted EBITDA on non-GAAP earnings per share within our guided range, despite the lower sales and increased costs related to component pricing transportation and logistics. Without these issues, we would have been at the midpoint of our guidance on the revenue range and we would have exceeded our guidance for both adjusted EBITDA and non-GAAP earnings per share. In our IP optical networks segment, we continue to add new customers with 12 new logos this quarter and to build our presence in the critical North American market where sales in this region have increased 270% on a year-to-date basis.

We had an exciting new win in the quarter with Viaero Wireless and Fiber Networks, a top 10 mobile network operator in the U.S. Viaero was deploying our entire IP optical solutions set, Apollo, for DWDM transport, Neptune for IP/MPLS networking, and Muse for domain orchestration and network management. The deployment will support 1GB and 10GB client-side aggregation over a 200GB optical transport network that easily scales up to 400GB wavelengths. The converged IP optical network supports both broadband backhaul and 5G xHAUL services.

We also announced a new win with Dakota Central, a longtime Ribbon Cloud & Edge customer based in North Dakota. They chose our IP optical solution to increase broadband speeds and provide the ability to backhaul 5G mobile traffic. Outside of the U.S., we added a major new customer, Megafon, the second-largest mobile phone operator in Russia. After an extensive RFP and trial process, they selected our Apollo DWDM solution for long-haul transport.

We're in the early stages of deployment with this new Tier 1 customer. Similarly, we had a great win with Moratel, the second-largest fixed broadband provider in Indonesia. They're adding capacity to their network, as well as adding a new subsea cable and will utilize our Apollo DWDM platform. In Europe, we continue to win new critical infrastructure customers, signing deals with a large Swiss utility company and a major rail operator in Germany.

These are all great examples of the strength of our IP optical portfolio and our ability to compete and win against the installed incumbents. Our product bookings to revenue in the quarter was 1.17 times, signaling growing demand into the end of the year. Sales in India continued to be impacted by environmental factors. And while shipments in the quarter were consistent with the second quarter, this is still down approximately 20% from the run rate in the second half 2020 and well below 2019.

While the market is slowly improving, we now only anticipate modest improvements in the fourth quarter. We remain well-positioned to capture significant business once the market rebounds in 2022. In our Cloud & Edge business, sales were down approximately 5% from the third quarter last year, excluding Kandy, when we benefited from higher session border controller spending from both service providers and large enterprise during the peak of COVID. Gross margins in the third quarter were very strong with a high mix of software, and when combined with a 14% reduction in our non-GAAP operating expenses, the adjusted EBITDA in this segment increased 7% compared to the third quarter of 2020.

Demand for our voice over IP network transformation solutions was exceptionally strong again this quarter, growing 78% year over year with higher shipments of our soft switch and medium gateway platforms. We have early visibility on several new major projects beginning in 2022 that will continue the momentum in this business, and we see growing interest in the adoption of cloud-centric technologies, what we're calling Telco Cloud. This trend is definitely breathing new life into this very important product segment. Session border controller sales decreased from the third quarter of last year, primarily due to a very large wireless trans-coding deal last year and strong sales in our 5K and 7K products to large enterprise.

I'm very encouraged by the growing pipeline of opportunities, following the creation of a dedicated enterprise sales team earlier this summer. We have new opportunities across a range of different verticals: healthcare, insurance, industrial, state and local government, financials, and expect meaningful improvement in sales this quarter. Our Ribbon Connect SBC is a service solution, supporting Microsoft Teams, continues to gain traction, with over 100 distributors and partners now onboarded. We also added a Top 3 U.S.

MSO to the platform in the quarter to support their growing business services offering and had several large international carriers evaluating the service. While it's still early, paid subscriptions have more than doubled over the last 90 days and we expect to continue to see sizable growth from this new recurring revenue service offering. And finally, in our reoccurring revenue maintenance business, we had another strong bookings quarter and continue to maintain a very high renewal rate, with bookings for the year now essentially 100%. I'll now turn it over to Mick to provide additional detail on our results for the quarter, and I'll come back on to review our guidance and provide additional detail on our plans for the remainder of 2021 and comment on 2022.

Mick?

Mick Lopez -- Chief Financial Officer

Thanks. As Bruce stated, we were very pleased with our performance this quarter considering the challenging supply chain environment. Let's start with commentary about our GAAP results for the quarter. Our GAAP net loss of $59 million includes a net negative impact of $55.6 million, or $0.38 per share, related to our investment in ABCT.

As we have mentioned in the past, fluctuations in ABCT's stock price affect our other income and expense line as we mark-to-market our investment every quarter. We have excluded this non-cash item from our non-GAAP results. Other factors contributing to the difference between our GAAP and non-GAAP results for the quarter include $2 million in restructuring expenses, related mostly to continued downsizing of our real estate footprint, $2 million in integration expenses, and usual adjustments for amotizations of intangible assets and non-cash compensation. On an adjusted non-cash basis, third quarter 2021 results were as follows: Total revenue was $210 million, down 7% year over year when adjusted for the sale of Kandy, and negatively impacted by approximately $9.5 million from supply chain constraints during the quarter; Non-GAAP gross margin was 57% in the third quarter, within our guided range, and down two percentage points from the prior-year period.

Cloud & Edge maintain strong margins of 67%. IP optical networks margin of 37% was affected by component cost and freight increases, as well as other items that we will explain in detail. Non-GAAP operating expenses were at $93 million in the quarter, up from $90 million in the second quarter, due to one-time benefits we had last quarter, as well as incremental R&D investments in our IP optical network segment, along with increased travel and marketing expenses. Non-GAAP adjusted EBITDA was $32 million, at the low end of our guidance, but a good result given the supply chain constraints.

Non-GAAP diluted earnings per share was $0.11 cents in the third quarter, within our $0.11 to $0.13 guided range. Our diluted share count was 148 million for GAAP and 154 million for non-GAAP earnings in the quarter. Now let's turn to the results of our two business segments. In our Cloud & Edge business, third quarter revenue was $142 million, down 5% on an organic basis.

We continue to trend with strong gross margins with 67% in the quarter, up one percentage point from the third quarter last year, and our fourth consecutive quarter at or above 67%. Non-GAAP adjusted EBITDA for Cloud & Edge was $45 million, up from $42 million in the third quarter of last year, with a margin of 32%. The year-over-year change was driven by higher software mix, the Kandy sale, restructuring savings, and discretionary expense savings. Here are a few additional points on the Cloud & Edge performance in the quarter.

Product revenue was $66 million, while service revenue contributed $77 million, with the majority of our service revenue, again, coming from our strong reoccurring maintenance business. Software accounted for 68% of total product revenue, up 12 percentage points from the second quarter. Now, turning to our IP optical networks business. We recorded third quarter revenue of $68 million, down slightly from $70 million in the second quarter, due in part to supply constraints and logistic delays.

Non-GAAP gross margin was 37% in the third quarter, which showed an 11-percentage-point decline as compared to the 48% in the second quarter. The lower gross margin in the quarter deserves a few comments as this is not expected to be the go-forward run rate. We previously noted in the second quarter investor call that the strong gross margin for the second quarter of 48% benefited from a number of one-time items and unusually strong product and customer profitability mix. In the third quarter, these two matters reverted back to normal and we had a further 3% decrease in margin due to supply chain incremental costs that included higher component prices, expedite fees, and freight costs.

Our priority is to continue to deliver high-quality products to our customers with minimal delays or disruptions. We do expect continued cost pressure from suppliers and transportation for the next several quarters but are actively working on mitigation. We estimate gross margins at or above 40% for the IP optical segment for the fourth quarter as we increase our revenue volume. Now here are some consolidating key metrics for the company.

Maintenance revenue represented 34% of total revenue in the third quarter, up 2 percentage points from the 32% in the third quarter last year. Service providers accounted for 82% of our revenue in the quarter and enterprise customers represented 18%, compared to 71% and 29%, respectively, in the third quarter last year. National customers provided 56% of our total revenue in the third quarter, one percentage point above the 55% in the third quarter of 2020. Our book-to-revenue, excluding maintenance, was 0.98 times for the third quarter.

Turning to our balance sheet, we ended the quarter with cash and cash equivalents of $104 million, including $3 million in restricted cash. This is a decrease of $11 million from the previous quarter, due primarily to a $16 million increase in accounts receivable due to timing of collections at quarter-end. Our $100 million revolver still remain undrawn. Once again, we comfortably met our quarterly financial covenants for our term loan.

Our bank leverage ratio was 2.34 times, well below the 3.5 times maximum. Fixed charge coverage ratio was 3.9 times, more than three times the 1.25 times minimum. Capital expenditures were $4 million for the quarter which had $600,000 of real estate leasehold improvements. We're really proud of the team this quarter for meeting customer demand and achieving our profitability guidance.

Now, we'd like to turn the call back to Bruce to discuss the operating environment and our outlook for the quarter.

Bruce McClelland -- Chief Executive Officer

Great. Thanks, Mick. Before discussing our guidance for the fourth quarter, I'd like to provide a few comments about the progress we're making on our core strategy of cross-selling our IP optical portfolio to the broad base of traditional Ribbon customers utilizing our voice over IP Solutions. We have very big ambitions for our IP optical business and have a deliberate strategy in each region to gain entry into large service providers that control the majority of the capital spend in the industry.

In the last 12 months, we've had a series of material wins with significant operators, such as Rogers, Optus, Singtel, Altice, Megafon, Telecom Italia, Taiwan Mobile, and Sony. The revenue growth associated with these wins is not yet reflected in our current financial results in a material way but we are investing in both R&D and go-to-market to support these wins. They will be a strong addition to the base of customers currently supporting our business. Beyond that, we have significantly increased the number of Tier 1 customers we're actively engaged with and who are evaluating one or more elements of our portfolio, as highlighted on Slide 12 of our third quarter investor presentation.

The sales cycle will take time but we expect many of these customers will be the next wave of wins, further increasing revenue in the second half of 2022 and full-year 2023. And the list of potential additional targets beyond this is even longer and collectively represents an even larger addressable market. All in, we estimate that we can address a $14 billion global market and are investing to capture a much larger share than we have today. Our disruptive approach to enable a more open ecosystem and network architecture, optimizing across both optical and IP layers of the network, and providing a next-generation orchestration and automation control system is really resonating with customers and disrupting competitors.

Extensive investments will be made in fiber network infrastructure over the next five years, enabling true 5G mobile networks and dramatic improvements in residential [Inaudible] broadband service. At the same time, the investment in collaborative voice communication is also expected to continue at a robust rate as enterprises adapt to leverage a more mobile workforce and digitize all aspects of their business. Traditional service providers are adapting their business model to embrace cloud technology, modernize their infrastructure, and to leverage public cloud platforms to accelerate new service introduction and lower costs. We're really entering a new phase for the company.

We've completed the integration of ECI in Ribbon and have done the hard work of building a new company. We're now in the second phase and beginning to see clear evidence that our strategy is working and will be a significant transformation of Ribbon. We're in a great industry with a favorable competitive environment and super excited about the future of the company. In order to provide more detail on our technology and solutions, we'll be hosting two virtual events on November 18th as part of a series we're calling Ribbon Spotlights.

We'll focus on two specific topics that day, beginning with what we're calling IP wave, how we envision the evolution of IP and optical networks, and our solutions that are leading this network transformation. We'll then discuss the quickly growing trend for carriers to further leverage public cloud platforms and our telco cloud solutions. We'll continue this series with additional events in 2022 and we'll keep the investor community posted on the day, some other details as we get closer to the events. So now for guidance.

Our sales team is now in front of customers on a regular basis which is a big benefit as we compete for new business. And personally, I have face-to-face customer meetings across Europe, the U.K. India, and North America over the next 45 days. Our Q4's sales pipeline is very robust and we continue to have line of sight to significant growth in the quarter with potential to exceed our updated guidance range depending on the end-of-year capital spend.

However, it's become more difficult to estimate the exact impact that global supply chain constraints will have on being able to fully meet demand. We also expect continued elevated costs in our IP optical segment this quarter due to higher logistics and expedite fees, but still project gross margins for this business back above 40% in the fourth quarter. With these factors in mind, we're broadening our normal guidance range on both revenue and earnings. For the fourth quarter.

Our expectations are, for revenue, in a range of $240 million to $260 million, non-GAAP gross margins of 58%, non-GAAP adjusted EBITDA of $45 million to $51 million, and non-GAAP diluted earnings per share of $0.13 to $0.17. Just a note on tax rates: As we close on the end of the year, we're adjusting our non-GAAP tax rate assumptions for the fourth quarter to approximately 39%, reflecting our projected regional income. This change results in a revised full-year tax rate of about 31% versus our previous estimate of 27% affecting the non-GAAP EPS calculation. While this updated guidance would put us short of our $900 million goal for the year, we expect to get very close to the adjusted EBITDA and EPS targets we established at the beginning of the year.

As we look into 2022, we have a growing number of tailwinds as we begin to see the results of our significant 2021 customer wins and the benefit of a broader global base. I expect that supply chain constraints will be an ongoing theme for us and others to manage, but the fundamentals behind the business are very solid and I expect 2022 to be a strong growth year. Operator, that concludes our prepared remarks and we can now take a few questions.

Questions & Answers:


Operator

At this time, we will be conducting a question-and answer session. [Operator Instructions] Our first question is from Paul Silverstein with Cowen. Please proceed with your question.

Paul Silverstein -- Cowen and Company -- Analyst

Thanks, guys. First off, Bruce, the $9.5 million of delayed shipments, if you had recognized those in Q3, does it follow that the fourth quarter outlook would be $9.5 million less? Or is there -- is this, as one would think, a ripple through that there's another $9 million or 1$0 million or some number of revenue that's delayed -- that will be delayed from Q4 into Q1 for similar reasons tied to logistics, etc.?

Bruce McClelland -- Chief Executive Officer

Yeah. Hey, Paul. That's a good question. You know, I would say, it's a zero sum [Audio gap] if we shifted in Q3, it would it would be a deduct from Q4.

Having said that, as we look at the Q4 guidance, obviously, we're trying to take into account any restrictions and and whatnot that we see and try to take that into account as we sit here today. So you know I think we're going to continue to see a variety of issues and and we're doing the best we can to make sure we estimate them as accurately as we can and put us --

Paul Silverstein -- Cowen and Company -- Analyst

Put through --

Bruce McClelland -- Chief Executive Officer

[Inaudible] situation.

Paul Silverstein -- Cowen and Company -- Analyst

Bruce, I appreciate the challenges with respect to visibility, etc., for you and all of your peers, but I want to keep you honest. When you talk about third quarter, would have been $9.5 million better, but for -- I just want to make sure you're clearly saying that, by definition, the fourth quarter outlook would've been $9.5 million worse but for -- if GAAP revenue had been recognized. But let me move on, I don't mean to give you a hard time. I just want to make sure [Inaudible] --

Bruce McClelland -- Chief Executive Officer

Yeah. No, that's correct, Paul.

Paul Silverstein -- Cowen and Company -- Analyst

Mick, can you repeat the impact from supply chain? I heard the $9.5 million but how much of the hit to margins for total company as well as three -- I don't know if you broke it out, I apologize if I missed it, but for IP optical and for Cloud & Edge, how much was both the revenue and the margin there for both of those businesses?

Mick Lopez -- Chief Financial Officer

Yes, Paul. So we noted that the impact to revenue was $9.5 million, and it's about half-and-half related to each of the business segments. In regards to the margin erosion, that was a bigger impact on cost increases, logistic and transportation, expedite cost, and that was about 300 basis points on the IP optical network side.

Paul Silverstein -- Cowen and Company -- Analyst

And was that -- Was 300 basis points the total impact? So it was all on IP optical orwas there also some in Cloud & Edge?

Bruce McClelland -- Chief Executive Officer

There was a little on Cloud & Edge, Paul, but the -- obviously, with the margins where they are, it's kind of significant on the Cloud & Edge side.

Paul Silverstein -- Cowen and Company -- Analyst

Got it. And Mick, or Bruce, with respect to normalized gross margin IP optical, I thought you all had been referencing a mid-40s to your credit model previously for that business, higher than I would have thought you could do, but can you just refresh my memory? What is the outlook for that business on a -- if we normalize -- if you normalize for the impact from supply chain, it's a steady state. What are you expecting that business to run in?

Bruce McClelland -- Chief Executive Officer

Yeah, so we're estimating low- to mid 40s, so it could be anywhere from 40% to 45% depending on mix and volume, etc. And as Mick mentioned, the -- let's call it 300 basis points impact of higher cost right now, we estimate that continuing in the fourth quarter which is why we're projecting margins in that segment, right around 40%.

Paul Silverstein -- Cowen and Company -- Analyst

Yeah, but long term, Bruce, do you think it can be of low to mid -- as much as mid-40s business, normally.

Bruce McClelland -- Chief Executive Officer

I think you'll see that happen quarter over quarter, Paul. I think if you look over an extended period of time and do an average, it's probably in the 42%, 43% range. It'll just move around a little bit each quarter.

Paul Silverstein -- Cowen and Company -- Analyst

Got it. All right. One more from me before I pass it on which is, Bruce, when these -- These impressive customer wins, the list of names of the customers that you're citing, Telecom Italia, etc., can you you give us a sense for the -- I assume the projects vary in nature but there is, of course, you're becoming the key optical supplier for metro or other build, and then there's getting a discrete project. And no shame if it's the latter, but can you give us a sense for what are the nature of those projects across those customers in terms of revenue impact in miniature departures? Thank you.

Bruce McClelland -- Chief Executive Officer

Yeah. Yeah, that's a great question, Paul. So some of them are -- They are project-based. They're more, let's say, enterprise WDM services, so you'll do one project at a time and you may have more in a quarter or less in a quarter.

It can vary. I think the real potential here for us, though, is if we get into the core portion of the transport network, like we've talked about with the Rogers opportunity, that ends up being a more consistent multi-year business. It really starts to build a stronger foundation for us like we have with our other Tier 1 customers in Russia and India and other areas. And these are all, for us, pretty meaningful opportunities, double digit millions annually and really start to strengthen the business for us.

Paul Silverstein -- Cowen and Company -- Analyst

Each opportunity, you would side it at least double digits annually? Some larger --

Bruce McClelland -- Chief Executive Officer

No, I wouldn't say -- I would say some are probably less than that that tend to be more enterprise-oriented but the larger ones are in that magnitude.

Paul Silverstein -- Cowen and Company -- Analyst

Bruce, can you give us -- I don't know if you want to, but can you give us, in the aggregate, those larger -- the incremental wins from the past quarter or two, what are those worth on an annual basis or quarterly basis?

Bruce McClelland -- Chief Executive Officer

Well, they, in a general sense, not to avoid the question, but obviously, it's sensitive information. They contribute toward our goal of 10%-plus growth on an annual basis. So that annual growth, 10% on $300 million-plus is annually $30 million worth of growth. That gives you an idea of what we expect out of kind of the aggregate, and hopefully more right to me.

We're really, obviously, putting a lot of effort into this space.

Paul Silverstein -- Cowen and Company -- Analyst

Got it. All right. I'll pass it on. I may come back in if no one has questions.

Thank you, guys. I appreciate it.

Bruce McClelland -- Chief Executive Officer

I appreciate it, Paul.

Operator

[Operator Instructions] Our next question is from Dave Kahn with B. Riley. Please proceed with your question.

Unknown speaker

Thank you. Good afternoon. I guess, first question is regarding -- Mick, tax. You said 39% fourth quarter.

Is that just for the fourth quarter or should we use that for next year as well?

Mick Lopez -- Chief Financial Officer

Yeah, certainly. This will be only for the fourth quarter. We've had some changes in our regional jurisdictional tax mix for the full year that will then average out to be 31%. So effectively, Quarters 1 through 3 at 27%, an adjustment in fourth quarter so that the full year is at 31%.

Unknown speaker

So how should we think about next year's tax rate? Back to 31% or --

Mick Lopez -- Chief Financial Officer

I would say that, obviously, we would like to reduce it back to the 27% with some further improve but keeping it in that range would be about right.

Unknown speaker

OK. And then I guess I can't figure out opex for fourth quarter but how should we think about opex fourth quarter and beyond?

Mick Lopez -- Chief Financial Officer

While you have seen that we have managed opex fairly well, we had unusually low opex last quarter, about $90 million that did have some one-time beneficial effects. This quarter, we were in -- closer to the mid-90s. We do expect the fourth quarter, as usual, to have a lot of variable compensation and other seasonal aspects that will put it closer to $100 million. But our goal is to maintain our opex in the mid-90 range and certainly continue to drive efficiencies in some aspects in order to continue to drive R&D in our future growth areas.

Bruce McClelland -- Chief Executive Officer

And Dave, if I might, I'm just having a comment on that. So some of increases is seasonal, if you will, right? Variable comp, etc., but we are investing more, as I mentioned on the call, around R&D investment and go-to-market investment around IP and optical. As we win more of these customers, they all come with some roadmap commitments and things like that. I think we'll continue to invest more.

We're really looking at this as a growth area for us and a great place to invest.

Unknown speaker

Got it. And just a couple of questions regarding the supply chain situation. So how many ships are fairly tight or giving you problems? Is it onesies or twosies which one of your competitors talked about or is it more broad based?

Bruce McClelland -- Chief Executive Officer

The biggest area, I think, where we see pressures around writing silicon, IP networking silicon, that's probably the area that's most challenging, but we have a variety of smaller things as well, really a handful of things. All it takes is, obviously, one component to cause an issue. So whether it's a connector or a fan or a PCB, what we're seeing, and it really picked up in the third quarter, is a tightness in a variety of different areas. And so it puts a lot of focus on making sure we're planning appropriately.

We're partnering closely with our our manufacturing partners, and good visibility from our customers on the demand. And I commented we see pretty strong demand here in the fourth quarter and part of the challenge is just making sure we can supply as much of it as we can.

Unknown speaker

Okay. And my last question is on -- back to chips. My understanding is that some of these chips' lead times are, like [Inaudible] one, one and a half years. Month, one and a half might be a little bit drastic but maybe one year or so, and if prices are going up, wouldn't your gross margin be impacted when these higher chips -- going to production like one year from now.

So, like, fourth quarter next year, gross margin will be under incremental pressure because of higher chips -- higher-price chips?

Bruce McClelland -- Chief Executive Officer

Yup. Yeah, I do think we'll see cost of goods pressure. You know we, of course, are attacking that on a daily basis with different programs across the company to continue to evolve the products and reduce cost and substitute less expensive parts, all those types of things, and really be able to try and manage that. You know you've seen a number of suppliers in the industry look at increasing prices and those sorts of things to also help offset the increased cost and I think you'll see more of that as the years progress here.

You're correct. If you go out and place an unplanned order today in some components, you'll get a one-year lead time on them. And so having, again, good visibility, good forecasting, long lead time orders on key components, all those kind of regular things are are part of that part of the job these days. And we've seen this cycle before.

The last big supply demand balance issue was around memory and other components like that, and it does level out. It takes time to happen but it does come back into balance, particularly around core basics and core silicon. Of course, the fab houses are oversubscribed these days and it really starts at that fundamental level that then drives restrictions and cost increases back into the whole supply chain. And what I do know is it that it levels out and it'll happen.

Trying to predict exactly when that happens is almost a fool's errand. You really just need to get on it and kind of manage it.

Unknown speaker

Got it. Actually, let me squeeze in one more. Some of the router companies have raised prices. Do you have that kind of leverage to raise prices on some of your products?

Bruce McClelland -- Chief Executive Officer

Yeah, I don't think of it so much as leverage as it's really what's the competitive balance. And as we're trying to win new business and position new products, we're looking for ultimately, for the best value for our customer, lowest cost for the best value. And that's actually something we're really good at, the advanced tools that we have for designing the network really allow us to drive to a really -- lowest possible build and material cost. And part of -- as we're doing that pricing, is looking at what are the target margins we're trying to generate.

And so I do think there's some flexibility. There would be more flexibility as more pressure increases around supply, for sure.

Unknown speaker

Got it. Thank you.

Bruce McClelland -- Chief Executive Officer

All right. Thanks, Dave.

Operator

Our next question is from Mike Latimore with Northland Capital. Please proceed with your question.

Unknown speaker

Hi. This is Adithyaa on behalf of Mike Latimore. Could you tell me how much did Top 10 customers contribute to your overall revenue?

Bruce McClelland -- Chief Executive Officer

We'll look that up here for you. It's in the low-50 range but we'll look it up here and just get back --

Mick Lopez -- Chief Financial Officer

Yeah. It is about that. The Top 20 is usually around 60%.

Bruce McClelland -- Chief Executive Officer

Tom will get that for you here in just a minute.

Unknown speaker

All right.

Tom Berry -- Investor Relations

Yeah, it's 47%. Bruce was almost exactly right at 47%.

Unknown speaker

Forty-seven, all right. Fine. Got it. And could you give me some color on how the situation is in India? Like do you guys see a bit of improvement in 3Q compared to the previous quarter? Or just a little more color on what's happening in India.

Bruce McClelland -- Chief Executive Officer

Our third quarter was, I think, slightly better than the second quarter. It was very, very similar. We saw our deployment rates kind of recover in the July timeframe from earlier in the second quarter. And we do expect a stronger fourth quarter, certainly in India, versus the third quarter, just not as strong as I thought, maybe, 45 days ago.

It's an interesting changes over the last 30 days in India. The Department of Telecom there has provided some relief to the mobile carriers related to the adjusted gross revenue taxes that are owed over the next 10 years and it basically pushed out the timing of some of those payments. I think that's going to provide some relief to the overall industry which is great. The other comment I'll make is that one of our large customers, Vodafone Idea, it's pretty public knowledge that they've been working on trying to recapitalize a portion of the balance sheet for the company.

And there's been kind of increased level of rumors around getting that done here, part of it, I think, because of some of the relief that the government's providing. That's an important element to our getting back to normal in the India environment. That's one of our largest historical customers there and getting them back into investing in the infrastructure is really key for growing our business and accelerating growth to the overall company next year.

Unknown speaker

All right. All right, fine. Thank you.

Bruce McClelland -- Chief Executive Officer

Thanks very much.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Brian McClelland for closing remarks.

Bruce McClelland -- Chief Executive Officer

Yeah, great. Well, thanks very much for joining us today. We're really looking forward to the Ribbon Spotlight events coming up next month and really highlighting some of the differentiation in the portfolio and how Ribbon wins. And so we're really excited about that.

And as you've seen in our press release, we have a number of investor conferences over the next 45 days so look forward to connecting with everyone. Thanks very much.

Operator

[Operator signoff]

Bruce McClelland -- Chief Executive Officer

All right. Thanks, Maria.

Duration: 46 minutes

Call participants:

Tom Berry -- Investor Relations

Bruce McClelland -- Chief Executive Officer

Mick Lopez -- Chief Financial Officer

Paul Silverstein -- Cowen and Company -- Analyst

Unknown speaker

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